Future seems ‘grim’ for Vietnam’s steel industry
Future seems ‘grim’ for Vietnam’s steel industry
Vietnam and the Eurasian Economic Union (EEU) signed a free trade agreement (FTA) on May 29, 2015 – the first such trade deal struck by the Moscow led body with a third country as it seeks to bolster its presence in Asian markets.
The EEU, which includes Russia, Armenia, Belarus, Kazakhstan and Kyrgyzstan, was launched in January 2010 to promote trade and economic integration. It has a combined population of 181 million and gross domestic product of around US$2 trillion.
The trade deal covers more than 90% of all commercial goods traded between the parties and it is anticipated to pose particularly tough challenges for Vietnam businesses in the steel manufacturing and fabrication industries.
Pursuant to the terms of the deal, once fully implemented, businesses within these two industries will be permitted to compete in the Vietnam-EEU free trade zone without the imposition of tariffs and other non-tariff barriers.
“The trade deal will undoubtedly bring major competition to the Vietnam steel fabricating industry as Russian steel has a reputation for high quality at a reasonable cost,” said Vietnam Steel Association Vice Chairman Nguyen Van Sua.
Each year, the Russian industry produces roughly 70 million metric tons of steel using some of the world’s most advanced technologies. Each ton of steel billet produced in Russia consumes 50 kilowatt hours of power.
Meanwhile, Vietnam manufacturers use excessively more of the industry’s number one cost input, almost 10 times more electrical power to produce the same tonnage, putting them at a severe competitive disadvantage.
Additionally, most Vietnamese steel businesses are relatively small-scale operations and lack the financial backing to invest in more advanced technologies to improve quality let alone the skill set to utilize them.
Sua also suggested that Vietnam businesses are severely handicapped by their deficient knowledge of international trade laws and practices, with the single greatest challenge for exporters being their lack of knowledge of foreign markets.
Pham Chi Cuong, former chairman of the steel association, in turn is adamant that only Vietnam’s largest steel producers have any possible chance of competing on an equal footing with their Russian counterparts.
Cuong is all too quick to point out there are not many businesses that fall into this category.
Phan Dao Vu, a representative of the Vietnam-Australia Steel Company, also agrees that local steel producers will face innumerable and likely insurmountable challenges following the implementation of the FTA.
Many business leaders, including the Vietnam Steel Association, have called for the government to step in and intervene with protective measures to protect the multi-billion dollar steel industry from competition.
While there is little question the FTA is good for consumers in Vietnam, considering they are getting a higher quality product at a much better price, it straightforwardly means the industry has its work cut out getting its products up to snuff.
Utilizing higher quality steel at a lower cost is also good for the nation’s infrastructure in this time of rapid expansion with new factories, bridges, airports and other infrastructure that incorporate steel into their final product benefiting tremendously.
Deputy Minister of Industry and Trade Tran Tuan Anh underscored just this point saying that with Vietnam opening its markets and moving towards global integration, steel businesses should accept that they need to get more competitive to survive in a market economy.
Vietnamese steel business leaders are looking increasingly out of touch with market realities in a world of global supply chains.
They need to find a niche in making something they are good at and dump the sense of entitlement.
